S&P 500 Futures, yields portray recession fears as traders await key US data

The risk profile remains weak during early Wednesday, after witnessing a volatile day, as traders await top-tier US data amid hawkish hopes from the Federal Reserve. It’s worth noting, however, that the recent market surveys hint at a softer landing for equities and a mixed speech from Fed Chair Jerome Powell at the key Jackson Hole symposium.

While portraying the mood, US 10-year Treasury yields remain mostly steady around 3.05%, after rising to the highest in a month the previous day. That said, Wall Street benchmarks closed with mild gains and directed the S&P 500 Futures to follow the path by the press time.

Recently, Minneapolis Fed President Neel Kashkari mentioned that the biggest fear is that we are misreading underlying inflation dynamics, per Reuters. The policymaker added that the Fed could relax on rate hikes when compelling evidence of CPI heading toward 2% is seen.

Comments from Fed’s Kashkari tamed concerns that Fed Chair Powell would go slow on rate hikes while speaking at the Jackson Hole on Friday, as backed by Goldman Sachs.

It should be noted that the softer US data also raised concerns over the hawkish Fed bets the previous day. That said, The preliminary readings of the US S&P Global Manufacturing PMI for August eased to 51.3 versus 52.0 expected and 52.2 prior while the Services gauge plunged to 44.1 from 47.3, compared to 49.2 market forecasts. According to S&P Global, the US economy is also in trouble as the Composite PMI shrank to 45, its lowest in 27 months. Furthermore, the US New Home Sales for July dropped to the lowest levels in six years, to 0.511M from 0.585M prior and 0.575M market forecasts. Furthermore, the US Richmond Fed Manufacturing Index for August dropped to -8.0 compared to the 0.0 previous reading.

Even so, traders in fed funds futures are pricing in a 52.5% chance of a 75 basis-point (bps) rate hike at the Fed meeting next month. On Monday the odds favored a slightly better-than-even chance of a 50 bp hike in September, per Reuters.

Other than the Fed concerns and US data, the energy crisis in Europe and doubts over China’s economic health also weigh on the market’s risk profile, which underpins the US dollar’s safe-haven demand. As a result, commodities and Antipodeans witness a downside move after the previous day’s corrective pullback.

Looking forward, a light calendar may restrict market moves ahead of the US Durable Goods Orders for July, which is expected to be 0.6% versus 2.0% prior. However, significant attention should be given to Friday’s Fed Chairman Jerome Powell's speech Chairman Jerome Powell at the Kansas City Fed’s symposium in Jackson Hole.